Homeowners coming to the end of low fixed-rate mortgage deals could face a significant long-term cost to their retirement savings, according to new analysis from Standard Life.

The latest number crunching from the retirement specialist shows the trade off between coping with higher living costs today and safeguarding long term financial security, revealing how money currently absorbed by rising mortgage repayments could make a significant impact if invested in a pension instead

Although the Bank of England (BoE) held interest rates at 3.75%, borrowers refinancing this year are still confronting higher mortgage costs. Average five-year fixed rates have risen from 4.91% at the start of the year to 5.63%, increasing repayments on a £500,000 mortgage by around £213 a month. For homeowners moving from a 2.5% fixed deal secured in 2021 to today’s average rate, monthly repayments could rise by approximately £866.

Standard Life said the impact extends beyond household budgets. Its modelling suggests that if that additional £866 were invested into a pension over 25 years from age 34, it could increase retirement savings by around £268,000 in today’s prices. Even redirecting £213 a month could add around £66,000 to a pension pot.

“For those coming off lower fixed-rate mortgages taken out before the recent rise in interest rates, the increase in costs can be significant. That’s putting real pressure on household budgets at a time when many people are already contending with higher day-to-day expenses, and may lead them to reassess their wider finances,” said Mike Ambery, retirement savings director at Standard Life.

“For many people, buying a home is a key part of their long-term financial security. But as mortgage costs rise, households may have less flexibility to save elsewhere, including into their pension,” Ambery said.

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